U.S. Services PMI (NMI) continued to expand in September, according to data released by the Institute for Supply Management (ISM) on October 3. The NMI rose from 51.5 in August to 54.9 in September, reaching its highest level since February 2023.

Breaking down the sub-indices, the Business Activity Index increased from 53.3 last month to 59.9, while the New Orders Index climbed from 53.0 to 59.4. Both indices have expanded for the third consecutive month, with gains exceeding 6%, driving the overall increase in the NMI and signaling that demand for U.S. services remains robust.

However, the Employment and Supplier Deliveries indices showed mixed performance. The Employment Index fell from 50.2 last month to 48.1, ending two consecutive months of expansion and returning to contraction territory. Surveyed firms reported difficulties in hiring new workers, resulting in slower employee growth, while job vacancies and layoffs remained largely unchanged, aligning with recent signs of a slowing labor market.

On the other hand, the Supplier Deliveries Index rose from 49.6 to 52.1, indicating that stronger business activity and rising orders have caused suppliers to slow their delivery times.

In other indices, the Prices Index rose from 57.3 last month to 59.4, reflecting strong demand, marking the 88th consecutive month of expansion. Meanwhile, the Inventories Index increased from 52.9 to 59.1, suggesting that businesses are stocking up in anticipation of the upcoming holiday season and in response to recent port labor strikes.

Overall, the September NMI data indicate that U.S. consumer demand remains strong. The report notes that the NMI corresponds to an annualized real GDP growth rate of 1.9%.

This contrasts sharply with the Manufacturing PMI data released the day before, which showed a reading of 47.2 for September, marking the sixth consecutive month of contraction. The gap between the two sectors’ PMI readings has widened to 7.7 points, the largest divergence since late 2019, underscoring the growing disparity in U.S. economic growth trends.

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The U.S. non-farm payroll data for August is set to be released on September 6. Ahead of that, the ADP employment report, often referred to as the “mini-NFP,” was published on September 5. The report revealed that private-sector employment in the US rose by 99,000 jobs in August, significantly lower than the market expectation of 145,000, marking the lowest level since 2021 and signaling a further slowdown in the labor market. This has heightened speculations that the Federal Reserve might increase the scale of rate cuts.

The ISM Services PMI, which was released on the same day, presented a more optimistic picture. The August Services PMI came in at 51.5 (previously 51.4), slightly higher than the market expectation of 51.3, remaining in expansion territory for the second consecutive month.

Breaking down the sub-indices, the employment index fell to 50.2 (previously 51.1), in line with the ongoing labor market slowdown but still indicating growth. The new orders index rose to 53.0 (previously 52.4), and the supplier delivery time index increased to 49.6 (previously 47.6), reflecting continued strong demand for services. However, the business activity index dropped to 53.3 (previously 54.5), suggesting that high interest rates and costs are still exerting some negative pressure on business operations. Despite this, all indices remained in expansion, indicating that the overall services sector is still experiencing stable growth.

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In the commentary from managers surveyed, industries with rising demand (such as finance, information, entertainment, and healthcare) reported continued improvement or strength in business activity. Conversely, sectors with declining demand (such as construction, utilities, and wholesale trade) cited high interest rates and cost pressures as factors weakening business activity. Some companies in these sectors are also conducting layoffs or reducing hiring. Overall, while the demand in the services sector is significantly stronger than in manufacturing, there are still signs of uneven recovery across industries.

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